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JDEDZ PROJECT REVIEW SEPTEMBER 2017 common through year five, the whole curve has flattened substantially in recent years. In the current environment, a reasonable analyst would forecast far lower annual gains for a Pleasanton Costco than did Century Urban. ALH Urban & Regional Economics ALH completed an economic impact study of the JDEDZ in March 2016, and it is this study that provides the inputs for the payment schedule above. ALH forecast that the Pleasanton Costco would generate sales equal to the corporate average sales per square foot for US stores, producing a first-year total of$170.4 million. ALH further forecast that sales would increase at a pace of 3% per year for at least the full 25 years of the agreement. Analysis The ALH impact study presents sales forecasts for a Pleasanton Costco that shows little connection to the data provided by Costco itself in its annual reports, instead building the analysis on a square footage basis. ALH first assumes a Pleasanton store would come out of the gate achieving companywide average sales, an assumption that is clearly not supported by Costco data. Then, ALH forecasts a never-ending string of 3% annual sales gains, again without reference to what Costco stores achieve elsewhere. A methodology based on the allocation and performance of square footage is not unusual for clients seeking a broad sense of the possibilities, and in this case the analysis proves highly useful in our subsequent analyses. However, in the case of Costco and in the high stakes game of repaying municipal debt, a more rigorous look at the retailer in question and the data it makes public would reveal the danger of this approach. A More Realistic Costco Sales Forecast Costco Annual Reports provide a helpful set of"Financial Highlights" charts each year, including a table entitled "Average Sales Per Warehouse" depicting the average performance of company stores by year opened and year of operation. Civic Economics has collected several years of these figures and calculated annual sales change on the following page. From these tables (Figure 2), we can begin to develop a forecast for a Pleasanton Costco. Costco stores currently achieves average sales per store of$159 million; in the US, that figure rises to $171 million. However, as discussed above, individual store sales exhibit a characteristically slow start before ramping up and ultimately leveling off for the long haul. Indeed, company wide sales in 2016 were flat relative to 2015. Year 1 Sales Century Urban chose what seemed a reasonable and data-supported approach to forecasting first year sales of a Pleasanton Costco, which we have adopted here. They began with the company average first year store sales ($108 million in 2014) and added a generous adjustment of 25% on the assumption that the prosperous and expensive Bay Area market generates higher than normal sales, an assumption with which we agree. Using updated numbers from the 2016 Annual Report, we would estimate then that a Pleasanton Costco would achieve first year Civic Economics 4